When You Buy a Property – What Actually Happens At Settlement?

When you purchase a property, the concept of what actually takes place on the “settlement day” can be confusing. Below is a quick summary:

Prior to Settlement:

Your conveyancer will obtain “cheque directions” from the Vendor’s conveyancer (ie. who to make your funds payable to, be it your own cash or your new home loan)

Your First Point Group Consultant will put your conveyancer in touch with the Lender so they can advise the Lender who to make your loan proceeds payable to

Typically 1-2 days prior to settlement your conveyancer will ask you for your final cash contribution – usually in the form of a bank cheque which you need to obtain

On Settlement Day:

At a pre-arranged time, the Lender, your conveyancer, the vendor’s conveyancer and often Vendor’s discharging financier will physically meet to enable the “settlement” to occur.

They each bring the following to the table:

Your conveyancer brings your bank cheque for your final contribution – this is handed to the Vendor’s conveyancer

Your Lender brings a bank cheque for the loan proceeds (minus stamp duties and bank fees) – this is also handed to the Vendor’s conveyancer. The Lender will later pay the stamp duty fees directly to the State Revenue Office

The Vendor’s discharging financier brings the discharge of mortgage & certificate of title to the property being purchased

The Vendor’s conveyancer will obtain the Certificate of Title for the property and hand it to the incoming Lender so they can register the Mortgage of Land (if you were paying cash for the property then the Certificate of Title would be handed to your conveyancer)

The Vendor’s conveyancer would normally call the real estate agent to let them know that settlement has gone through

You pick up the keys to your new property! If you have any queries in relation to the loan process or indeed any finance related matters please contact our office.

What does a Finance Broker do?

First Point Group is a team of highly experienced, qualified finance professionals that also access leading edge software to assist in matching your personal and business needs to the market. First Point Group provides you with a professional approach to residential and commercial mortgage broking.

With First Point Group’s leading edge mortgage software and many years of experience, our Mortgage Brokers search hundreds of loans from an extensive panel of lenders and find the one that suits you.

Read our 10 Step Loan Process which outlines our “end to end” service in more detail.

Our Finance and Mortgage Brokers are experts who you should speak to when thinking about buying a home, refinancing, buying an investment property, business finance, lease or commercial property finance.

What is Offset, and what is Redraw?

Offset Accounts and loan Redraw facilities are very similar in nature, with both allowing a borrower to make additional payments against their variable rate loan, thereby reducing interest on the loan.

With an offset account, a separate savings/transactional account is established whereby

The amounts deposited by the borrower into the offset account in most cases do not derive interest income

But they effectively reduce the amount of interest payable/calculated on the linked loan account (ie. the “net loan balance”)

With a redraw facility, no separate savings/transactional account is created. Instead, the borrower can make additional repayments directly into their variable rate loan, and subsequently “redraw” the additional amounts at a later point in time.

Effectively, the same outcome when the lender calculates your interest payable.

Which is better for me?

Offset accounts and redraw are very different when funds are required at a later time (eg. taken out of offset or redraw, in the future).

Assume two people have their own $100,000 home loans:

Borrower 1 makes $30,000 worth of additional repayments against the home loan.

Borrower 2 puts $30,000 into an offset account where the balance in the offset against the gross loan balance.
Effectively both borrowers currently pay interest on the home loan equivalent of $70,000.

Both borrowers then wish to purchase a new property to be used as their home “Principal Place of Residence” (PPR) but wish to retain their existing PPR, as an investment property.

Question — Can borrower 1 redraw from the home loan (equivalent to the extra repayments made) to purchase their new PPR and will the interest on $100,000 i.e. $70,000 plus $30,000 redraw be tax deductible?

Answer – Yes they can redraw, but No the interest on the $30,000 portion is not tax deductible. This can be a very messy situation come tax time

Question — Can borrower 2 draw $30,000 from the offset account to purchase their new PPR and will the interest on $100,000 i.e. $70,000 plus $30,000 withdrawn from the offset account be tax deductible?

Answer – Yes they can use the offset cash towards the PPR and Yes the interest on the entire $100,000 is tax deductible.

The difference is that redraw effectively changes the “purpose” of the $30,000 portion of that loan. The purpose is to buy a home, not the original property (now an investment / tax deductible). When you draw money out of offset, the original loan remains intact and the purpose (from a tax perspective) does not change.

The numbers are the same, but the result after tax can be very different. It is however important to note that “offset” does not suit everybody and re-draw is often satisfactory for many.

Property Investment

Investment Loans

Borrowing to invest can be a fantastic way to grow your assets and ultimately plan for a wealthier retirement. There are many different assets you can invest in, including residential and commercial property, shares and managed funds. With appropriate financial advice, you can also borrow in your Self Managed Superannuation Fund to invest in property.

Choosing the right loan is just as important as choosing the right investment and implementing the best taxation strategy.

First Point Group is here to make the process of investing as easy as possible for you. If you are considering investing please contact us below to discuss your needs.

Property Valuations

When arranging most types of finance, Lenders will most often arrange their own independent property valuation, to ensure the property in question meets their approved security criteria, and to confirm the property value. Valuations are devised based on recent comparable sales in the same area – this does not include properties that are on the market, only sold properties!

First Point Group is often able to arrange the property valuation up front (prior to applying for the loan), to ensure there will be no issues with your loan approval.

“Features” that can actually devalue your property

Following are 5 examples of property features which can actually reduce the value of your property:

1. Removing trees: Contrary to many people’s belief, removing trees can sometimes cause more damage to the value of a home than simply leaving them there. A large attractive tree can add $10,000 – $15,000 to the value of a property in some areas.

2. Expensive, but unnecessary fittings: A renovation that gives you the best house on the street won’t necessarily get you the best price. If your neighbours’ properties have been neglected and not well-looked after, it won’t matter how much you spend on improvements, their properties (in particular the ones that have recently been sold) will affect your property value.

4. Mismatched additions: Renovations should be sympathetic to the original building. Starting an extension without considering the form or visual impact of the exterior materials being used so that the renovation appears as an add-on rather than part of the house, can potentially devalue your property.

5. Illegal building and faulty structures: Undertaking construction work without a permit normally results in devaluing the property.

Can I Get a Loan to Renovate

Whether you’re renovating an investment property to maximise your returns or making some improvements to your own home, we’ll help you save time and money.

Renovating can add value to your home, but like most creative projects, it can be frustrating and stressful. Depending on the size of your renovation project, you could need anything from a few thousand to hundreds of thousands of dollars.

There are a few options for refinancing, depending on the size of your renovation:

Redraw facility for smaller projects:

If you’ve paid extra money into your loan over the years, a redraw facility lets you use that money, as long as it’s not more than what you’ve paid in. It gives you flexibility to use your funds when you need them. This feature is great for smaller projects like a new bathroom or sun deck

Loan top ups for small to medium renovations:

You can tap into equity you’ve built up in your property to fund your renovation. A loan top-up lets you access that equity by increasing the credit on your existing home to fund the renovation. You’ll avoid the expense of getting extra finance through other means. Generally, you’re not able to keeping drawing your interest back up if you need more funds – you’ll need to apply for a new top- up loan if you need more cash. You might find there’s a minimum top up of $10,000, so this type of finance is good for small to medium renovations

Home equity loans for larger projects:

You can access the equity in your home to fund your renovation. The amount you can borrow depends on the amount of equity you’ve built up in your property over time. Even if you own your home outright, you’re generally only able to borrow a maximum of 80% of the value of your property If you’re ready to start your renovations, get in touch with a First Point Group broker who will assess your needs and financial position and find the right solution for you.

How can I access the Equity in My Property?

Accessing your equity

Saving for things like holidays or renovations can be difficult while you’re paying off a mortgage, but it doesn’t have to be. Home equity loans are designed to give you access to the equity in your existing home loan via a line of credit loan.

Mortgage refinancing is a common way of tapping into the equity you’ve built up in your existing property. The equity in your home is the difference between the property value and what you owe on your mortgage.

The amount you can borrow depends on how much equity you’ve built up in your property, and some other criteria. Generally, you’re limited to borrowing up to 90% of the value of the property.

You can use the funds from your line of credit loan to buy an investment property, renovate your existing home or to take a break.

How can I Pay off My Mortgage Quicker?

We save you money by securing you the right loan for your needs – helping you pay off your mortgage faster.
Use these expert mortgage broker tips to save on interest charges and pay your home loan faster.

Make extra repayments
Making consistent and ad-hoc extra repayments like bonuses and tax returns reduces the principal on your mortgage faster. The sooner you start making extra repayments, the more time and money you save.

Make your first repayment on settlement date
Your first home loan repayment is normally made a month after settlement. Make your first repayment on settlement day to reduce the principal before the first lot of interest accrues on the amount you have borrowed.

Make extra repayments immediately
Extra regular repayments made from the beginning of your loan term have a big effect on the length and costs of your loan. Even if you’re already more than five years into your loan term, you can still make big savings by making extra repayments now.

Make repayments more often
If your loan repayment amount is calculated monthly, you can make big savings if you pay fortnightly instead. You’ll pay an additional month off your mortgage every year which reduces the principal faster.Check the fine print in your loan documents to make sure your lender hasn’t calculated your fortnightly repayments to equal half what the monthly repayment would have been – this won’t save you time or money. Check out the extra repayments calculator to see how much you pay affects your loan.

Look for a flexible, cheaper rate
Your mortgage broker will help you compare home loans to find a loan with the right amount of flexibility at the right price. If you’re going to refinance, make sure the costs don’t outweigh the benefits.

Pay loan fees and charges up front
Pay establishment fees, legal fees and Lenders Mortgage Insurance (LMI) (if applicable) upfront rather than rolling them into your loan. You’ll save thousands of dollars in interest over the life of the loan.

Look for loans with free features
Some loans charge for every redraw or extra repayment, rate changes or to take repayment holidays, but some won’t. You can save on fees if you know what you’re likely to use and find a loan that doesn’t charge you to use it.
Negotiate to make savings

Negotiate with your lender to save – interest rates and establishment fees in particular are good places to start your negotiations. A good savings, credit and work history will help you save more.

Review your loan regularly
Reviewing your loan regularly to make sure it’s still working for you. Situations change, so being on top of it rather than waiting months, or even years, will potentially save you a lot of money.

Take a loan with an offset facility
With an offset facility, the balance of the account is offset against the balance of the loan for interest calculations. Because you pay interest daily, this can save you a lot of money long term. Have your salary paid directly into the offset account to reduce the interest even more.

How do home equity loans work?

Home Equity loans are most commonly offered as a line of credit loan, which allows you to withdraw funds up to a set limit at any time. You may be able to draw down the initial equity loan either as a lump sum or in stages. Generally a line of credit loan is an interest-only loan, and in some cases you may be able to capitalise the interest payments.

Property Development

Market and Risk Analysis

At First Point Group, we finance many property development transactions both residential and commercial. This article outlines a brief snapshot of key areas Lenders consider when approving residential property development proposals.

Risk Analysis

Client/Borrower: Is this a big project for the client? The experience and track record of the borrowers in property development is a key determinant of lender support

Builder: Experience and track record of builder is vital to ensure project completes on time. Are you comfortable as to the track record of your builder and their substance, ability to fund project until the Lender pays progressive draw downs. Have you viewed other sites completed by the builder and the quality of these projects and spoken to people who have used builder?

Construction: Your budget must be robust. Many clients operate in rounded numbers which can be an indication that project has not been costed in detail. I always find this a trap for first developments with cost overruns becoming greater than expected causing pressure to complete.

A fixed building contract is mandatory if you are not the builder. Ensure your costs include GST and that you are aware of any GST liabilities you have and any credits you may be allowed if developing to sell.

Market

Have you spoken to a valuer/trusted agent who can give you a realistic assessment of whether the market is ready for your development. What other developments are coming on stream in your area. Pre sales may be required by the

Lender.

What part of the real estate cycle are we in? Will the development be completed on time, within budget, to the quality stipulated and sell readily to clear the Lenders debt?

Security: From a Lenders perspective, the location, development and design are the key aspects. Does the development fit the area? Will the property sell within the required timeframe?

Interest: Capitalisation of interest is allowed on many projects, but not all. If capping is requested, then the project must be strong across all risk components above. Is there capability of the client to cover interest if necessary?

Please contact Peter, Simon or David on (03) 9882 2500 or contact us below.

When is a pre-sale really a pre-sale?

One of the key criteria to meet with most Property Development/Bank Lenders is pre-sales. Likely one of the banes of a Developers life other than accessing funding for the project but the two do run “hand in hand” with pre-sales required to often get a start at obtaining finance in most cases.

But when is a pre-sale really a pre-sale and meet the Lenders pre-sale requirements?

In most cases the Lender will require you to hold a 10% cash deposit with an executed contract for it to be considered a qualifying pre-sale. If you have any contracts with a 5% deposit, you may negotiate to include these as qualifying pre-sales, but you need to discuss this with your Lender before making the sale and accepting 5% deposits on contracts. The sale also must be at arm’s length, where the seller and purchaser act independently of each other.

One of the major variances between the various Lenders and their pre-sale requirements is to do with foreign non-resident purchasers. A few of the Lenders will allow around 20% – 25% of your required pre-sale coverage to be from foreign purchasers, whereas others will often refuse to allow any pre-sale contracts for foreign purchasers, as they argue it is way too difficult to pursue them offshore, should settlement not proceed for any reason.

Some other common pre-sale hurdles include:

Multiple sales to a single purchaser – often a maximum of two sales per individual or entity unless capacity to complete is demonstrated to bank

Settlement date on contract must be a maximum of one month post the notice of completion or issue of strata titles.

Sunset (or termination/recession) date must be a minimum six months post acceptable schedule for practical completion.

You need to consider you are targeting the right qualified pre-sales that are moving you closer towards overcoming your pre-sale hurdles put in place by your Lender?

Please don’t hesitate to call Peter, David or Simon at First Point Group if you need any assistance with development funding on (03) 9 882 2500 or contact us below.

Commercial & Business Loans

Whether you are seeking finance to purchase or develop a retail, commercial or industrial property, we can tailor a finance solution to suit your business.

We can also cater for working capital, business expansion and acquisition needs.

With access to a wide range of commercial lenders, we are also able to arrange finance for all of your motor vehicle, plant and equipment needs.

We specialise in catering for the needs of self employed and business clients through our technical expertise and detailed understanding of all facets of banking.

Use the links below to explain the different type of loans.

Term or Instalment Loan

Usually for those businesses with a long term finance need and require a lump sum to purchase an asset, expand their businesses or amalgamate existing debts.

Similar to Home Loans they can be variable or fixed. Loan terms are shorter, however, than a Home Loan and are usually approved between 10 and 15 years.

Repayments are normally principal and interest on a monthly basis but many Lenders are happy to provide interest only repayments for the first 1 to 5 years.

Commercial Bills

Suitable for Businesses and individuals to cover short or long term finance requirements.

A Commercial Bill assists you to raise finance through the drawing and discounting of negotiable bank bills. Interest rates are directly linked to the cost of funds on the money market – the Lender will then add their own margin to this figure. Facility amount is usually over $500,000 and terms range from 1 to 5 years. Can be fixed or floating.

Development or Construction Finance

Available to businesses and individuals who wish to develop a property and the loan sum is provided in progressive instalments as the construction progresses.

Low Doc Loans

Low Doc Loans provide a good solution for those self employed clients, companies and businesses who do not have up to date financial information to support a normal loan application.

Principally an “asset lend”, the interest rate for these loans are generally more expensive than the standard commercial loan.

For more information please contact us below.

Leasing

Car Lease

A Car Lease or Finance Lease is a commercial finance product which enables the customer to have the use of a car or commercial vehicle and the benefits of ownership, while the financier retains actual ownership of the vehicle.

The financier purchases the vehicle on your behalf, and you then lease the vehicle back from the financier and pay a fixed monthly lease rental for the term of the lease.

At the end of the lease you can either pay a residual value (final instalment) on the lease and take ownership of the car, trade it in or refinance the residual and continue the lease.

Car Leasing is suitable for companies, partnerships, sole traders and individuals where the leased vehicle is used for income producing purposes. It is also ideal for employees who want to salary package a vehicle through a Novated Lease as part of their remuneration.

Chattel Mortgage

A Chattel Mortgage is a commercial finance product where the customer takes ownership of the vehicle (chattel) at the time of purchase.

Under a Chattel Mortgage the financier advances funds to the customer to purchase a vehicle (usually directly to the car dealer), and the customer takes ownership of the vehicle (chattel) at the time of purchase.

The financier then takes a “mortgage” over the vehicle as security for the loan, by registering their interest over it with the PPSR.

Once the contract is completed, the security interest is removed giving the customer clear title to the vehicle.

A Chattel Mortgage is suitable for those companies, partnerships and sole traders who use the “cash method” of accounting (they record business income and expenses as and when they occur) as it allows them to claim the GST in the vehicle’s price up-front – ie. in the very next BAS.

Personal Loan / Car Loan

A Car Loan is a personal finance product where the financier lends the customer funds for the purchase of a vehicle, and secures the loan against that vehicle.

A Car Loan is can also be known as a Consumer Loan or a Secured Car Loan.

Under a Car Loan the financier advances funds to the customer to purchase a car. The customer takes ownership of the vehicle at the time of purchase, and the financier takes an interest in the vehicle as security for the loan.

Once the contract is completed, the financier lifts their interest in the vehicle, giving the customer clear title.

A Car Loan is suitable for individuals who wish to purchase a late model car and do not have significant business use of their vehicle or the option of novated leasing (salary packaging).

Novated Lease

Novated Leasing is a method of salary packaging a car, under which an employee leases a car and the employer agrees to take on the employee’s obligations under the lease, paying the monthly lease rentals from the employee’s pre-tax income (“salary sacrificing” this income). If employment ceases for any reason, or the lease agreement is finalised, the Novation ceases and the obligations assumed by the employer revert back to the employee.

A Novated Lease will suit any employee who wants to include a motor vehicle as part of their salary package, so long as their employer offers salary packaging as an option for employees.

Debtor Financing

A facility to assist with cash flow, where funds can be advanced against the debts your clients owe you – without the need for the provision of your home as security.

For more information please contact us below.

Overdraft

The Overdraft facility is a flexible product designed to fund seasonal and or unexpected expenses. Provides a business with the opportunity to help manage cash flows more effectively. Funds can be withdrawn and deposited at any time.

For more information please contact us below.

Refinancing

Refinancing means to take out a new loan, and use it to pay out an old loan.

Upon careful review and consideration of your current loan, we may recommend that you refinance to another loan in order to benefit from a lower interest rate, or a better loan structure.

Refinancing is very common as the Australian loan market becomes ever more competitive.

Please Contact Us if you would like us to conduct a no obligation review of your loan, free of charge.